Expenses

1. 1

   A plurality of small employers report that employee wages, salaries, commissions, etc., is their single largest expense category. Still, just 19 percent say that employee pay is their single largest expense. Another 21 percent put pay in their top two or three costs. A separate category, employee benefits excluding taxes such as FICA, resulted in an additional 10 percent who placed employee compensation costs in the top three business expenses. Employee health insurance falls in this expense category.

2. 2

   Materials and supplies, and inventories (cost of goods sold) are two other categories of expense that are prominent. Combined, 20 percent of all small-business owners report these expenses as their single most important and another 25 percent put them in the top two or three. Twenty-six (26) percent have no inventory costs.

3. 3

   Few small-business owners appear to go out on a limb investing in business equipment or vehicles. While 89 percent have business equipment expenses, just 13 percent report that they are among the top three costs. Similarly, 85 percent have vehicle expenses, though just 17 percent indicate they are in one of the most costly three categories.

4. 4

   Business taxes, not including personal tax on business income, constitute an important expense, but typically are not among the largest. Forty-four (44) percent list business taxes among the top five expenditures and 46 percent say they are not in the top five. Such taxes could include real property, personal property, franchise, and corporate income. Business insurance expenses, except insurance as employee benefits, appear comparable.

5. 5

   Interest expenses are modest, when they exist, for most small-businessmen and women. Two percent report interest is the largest single cost they have while 28 percent report that they have no interest costs. A healthy economy and low interest rates contribute greatly to this condition.

6. 6

   Rent/lease of space is an important expense category when small-business owners have it. However, a substantial portion of the small-business population owns its space.

7. 7

   The owner is the person most likely (47%) to keep the business’s financial records on a day-to-day basis. However, that responsibility falls to a family member of the owner in 21 percent of cases, an employee in 20 percent, and someone else in 12 percent.

8. 8

   The cash method of accounting is the one most frequently used by small-business owners (41%). Nineteen (19) percent use the accrual method and another 12 percent a hybrid of the two. But 28 percent are not certain of the method of accounting that they use.

9. 9

   Most small-business owners cannot name the inventory accounting method they use. Of those with significant inventories (in their top five business expenses), just 16 percent use FIFO and another 13 percent use LIFO. The remainder mentions something else or does not know.

10. 10

    Forty-one (41) percent of those with significant inventories have them tied to a point-of-purchase device or computer to automatically track them.

Volume 6, Issue 4, 2006
ISSN -

William J. Dennis, Jr.
NFIB Research Foundation

• 1A(expense) Promotion, advertising, meals, entertainment.
• 1B(expense) Business insurance, not including employee benefits such as life or health insurance.
• 1C(expense) Building or office rent.
• 1D(expense) Car, truck, and other vehicle expenses, including depreciation.
• 1E(expense) Employee benefits, not including taxes such as FICA.
• 1F(expense) Interest.
• 1G(expense) Inventories.
• 1H(expense) Business equipment, including depreciation.
• 1I(expense) Business taxes, not including personal income taxes.
• 1J(expense) Professional services, such as accounting, computer programming, legal.
• 1K(expense) Materials and supplies.
• 1L(expense) Employee wages, salaries, commissions, etc.
• 1M(expense) Utilities, including telephones.
• 2Who does the day-to-day financial record-keeping for your business?
• 3Does your business use the cash method of accounting, also known as the cash basis, the accrual method of accounting, also known as the accrual basis, a hybrid of the two, or are you not really sure?
• 3aApproximately, how many days of inventory do you try to maintain on your most important items?
• 3bIs your inventory tied to a point of purchase device, such as a cash register, or some type of computer software that allows you to keep an up-to-the-minute status of your inventories?
• 3cDo you use LIFO, FIFO, another method, or are you not sure of the method used to account for your inventories?